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Page 1: AN EXPLORATORY STUDY OF RETAIL SERVICE MANAGEMENT …diannewelsh.wp.uncg.edu/wp-content/uploads/sites/7/2013/09/AN... · Local retailers have pursued a strategy of lowering prices

AN EXPLORATORY STUDY OF RETAIL SERVICE QUALITY EXPECTATIONS AND PERCEPTIONS

AMONG PHILIPPINE SMALL/MEDIUM ENTERPRISES

J. Mark Munoz Tabor School of Business

Millikin University 1184 West Main St., Decatur, IL 62522

(217) 420-6762 (217) 429-0824 fax

[email protected]

Peter Raven Albers School of Business and Economics

Seattle University 900 Broadway

Seattle, WA 98122-4340 (206) 296-5763

(206) 296-2083 fax [email protected]

and

Dianne H.B. Welsh* James E. Walter Distinguished Chair of Entrepreneurship

Director, Entrepreneur & Family Business Programs John H. Sykes College of Business

401 Kennedy Boulevard Tampa, Florida 33606-1490

Voice: 813-258-7391 Fax: 813-258-7236

[email protected]

Submitted to:

Journal of Developmental Entrepreneurship

Revised December 2005

*Corresponding Author

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The Philippines is among the emerging markets in the world. Along with China, the Philippines attracts

international enterprises seeking to establish a presence in Asia. This study examines small/medium

enterprises (SMEs) management and employee perceptions of customer service on a number of

dimensions. The results suggest that managers and employees in the Philippines behave in similar ways to

those in Western countries, but there are differences, probably related to cultural characteristics. As the

Philippine market becomes more involved with global business, the importance of service quality increases.

The results can be valuable in the formulation of training, sales and marketing, business development,

human resources management, and strategic planning. Implications for practice are discussed.

Keywords: SME’s, Retail, Service, Philippines

1. Introduction

With a growing population of around 86 million and close proximity to other Asian markets, the Philippines is

strategically appealing (Philippine National Statistics Office, 2002). The United States has traditionally been the

Philippines' largest foreign investor, with about $3.3 billion in estimated investment as of the end of 2002,

comprising 22 percent of the Philippines' foreign direct investment stock (US Department of State, 2001).

1.1 Business and Economic Landscape

Since the mid 1990s, the Philippines has been described as Asia’s newest “tiger cub” (Sison, 2003, p. 6). New

technologies, workplace innovation, creative management, and productivity enhancement approaches have been

introduced in recent years. Local retailers have pursued a strategy of lowering prices to the lowest possible level to

keep customers loyal while increasing service quality (Dumlao, 2004). Millions of Filipinos reside in the US and

travel back to the Philippines, paving the way for widespread cultural convergence. Furthermore, 94% of Filipinos

speak English (Philippine Franchise Association, 2004).

1.2 Culture and Management in the Philippines

Sison (2003) describes the Philippine society as being spatial (rural and urban, with a multitude of regional and

ethnic groups), temporal (historical diversity), multi-lingual (111 dialects), multi-ethnic (Malay, Chinese, Spanish,

American), multi-religion (Roman Catholic, Moslems, Protestants, Buddhists, and traditional beliefs),

geographically fragmented (7,107 islands), and culturally young as a sovereign nation (100 years in 1998). Sison

(2003) observes that Filipinos tend to be an insular people, tending to focus on short-term and immediate interests.

As a predominantly coastal region beset with severe seasonal typhoons, Filipinos have developed a fatalistic attitude

(known as “bahala na”), leaving their fate to God.

Filipino management can be characterized as formal (need to use titles, formal names, and handshakes),

punctual (need to prepare for delays due to traffic congestion), relaxed (allow time for small talk), sensitive (avoid

raising voices or implication of incompetence), paternalistic (strong family environment in the workplace where the

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leader is likened to a parent), dense with close work networks (similar to the Spanish compadrazo system or

godparenting), loyal (maintaining social harmony, known as pakikisama), indirect and elusive communicative

responses (executives tend to use a variety of approaches to say “no” to soften the blow and prevent

embarrassment), incomplete (often referred to as “ningas cogon” or short-lived fire concerning project

incompletion), and trustworthy (known as “tiwala”), a key ingredient in building a successful relationship.

Successful retail managers must give consideration to the implications of people’s culture on business operations.

Cultural value dimensions help us understand Filipinos and their interaction with retailers and service

expectations. Hofstede (1991, 2004) indicates that Filipinos tend to have relatively high power distance (degree to

which employees accept that their boss has more power than they do) and low individualism measures (tendency to

take care of oneself and one’s immediate family first). In addition, they have a relatively short-term time

orientation. Trompenaars (1994) found the Philippines to be an ascriptive culture, one in which people are accorded

status based on who or what a person is.

1.3 The Influence of Religion

The application of ethical principles and religion in business has been discussed in the US management literature,

(e.g., Longlely 1999; Vinten 2000) as a relatively new phenomena. In the Philippines, ethical judgment in business

is anchored in the concept of sin (kasalanan) and virtuous action (mabuting gawa), which are closely linked with

religion (Sison & Angeles, 2002). In general, Christian principles are perceived as the norm and considered

desirable attributes in the work environment. Herrington (2004) points out that Filipinos’ sense of joy and humor,

flexibility, adaptability, and creativity are attributes formed inherently from strong religious beliefs and faith in God.

The acceptance of failure, defeat, loss, pain and other hard realities are often dealt with in the context of the situation

as being God’s will. These values may be consistent with fatalism demonstrated in other Asian cultures.

1.4 Retail Environment

Retail trade in the Philippines has blossomed in recent years. The Philippine National Statistics Office (2004)

counted 437,325 establishments engaged in wholesale and retail trade in 2000, with the industry employing over 1.7

million people. A majority of retail stores are small, home-based, unregistered, and employ a staff of less than 10

people. In March of 2000, the Retail Trade Liberalization Act went into effect that allows for 100 percent foreign

ownership of retail enterprises as long as a minimum of USD 2.5 million in paid up capital is declared, which paves

the way for increased competition in the retail arena (Patalinghug, 2001).

Retailing in the Philippines spans a gamut of venues including sari-sari stores (i.e., small mom and pop

stores), sidewalk vendors, wet and dry markets (produce and dry goods), groceries, supermarkets, hypermarts,

warehouse and discount clubs, large malls, mall stores and shops, and convenience stores (also known as c-stores)

(Omana, 2003). Despite the numerous successes experienced by new domestic and international retailers, the

lifeblood of Philippine retailing lies in the huge network of sari-sari stores. Sari-sari stores offer lower-income

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consumers the opportunity to purchase in smaller portions in line with limited budgets, easy accessibility, and credit

terms.

The Philippine retail industry is fragmented, but as large international players enter the country, the

industry will likely experience greater consolidation and should be prepared to respond and adapt to incoming

paradigm shifts (Lugo, 2002). In order to be successful, there is a need for retailers to efficiently combine networks

and resources and to pursue new strategies in a timely manner. There exists a strong push towards the provision of

top-notch customer service approaches that is on a par with international expectations. In the Philippines, building

customer loyalty is a primary goal for retailers. The ability of a retailer to plan and implement measures towards

customer retention determines the path towards future success or failure.

1.5 Service Quality

Service quality has been studied to a considerable extent in the US, but less so in the Philippines and other

developing countries. Previous research has generally supported a relationship between culture and service quality

(Furrer, et al., 2000). Crotts and Erdmann (2000) found that Hofstede’s value dimensions relate to travel service

satisfaction, suggesting culture is related to perceptions of service quality. Consumers with high uncertainty

avoidance values and short-term orientations tended to have higher expectations for service quality (Donthu & Yoo,

1998). Measuring service quality outside the U.S. has been limited, one issue being the validity of measures used in

the U.S. and their use in other countries (cf. Donnelly, Van’T Hull, & Will, 2000; Lam, 1997; Wetzels, Ruyter, &

Lemmink, 2000; Raven & Welsh, 2004). Measuring service quality is important in determining the nature of its

relationship with culture and its importance in retail establishments.

Retailers in the Philippines find their market increasingly competitive, with foreign retailers attempting to

move into the market in greater numbers (Baetiong & Flores, 2002; Garcia, 2002). Competing with global retailers

will become increasingly difficult, unless local Filipino retailers can differentiate themselves in ways meaningful to

their customers (Roncesvalles, 2003; Jabson, 2004). This study takes an initial look at current service quality issues

and relates them to various cultural and demographic dimensions, in an effort to understand service quality in the

Philippines.

2. Hypotheses

We examine the relationships between service quality expectations, perceptions, and fatalism. Since this is an

exploratory study with little theory to guide us, we submit the hypotheses based on explanations from previous

studies and our own observations. Shopping experience should have an effect on both expectations and perceptions

of service quality. We expect that experienced shoppers should be more likely to expect higher service quality and

perceive that they get it. Experienced shoppers know which stores consistently provide good service and are likely

to frequent them more often than retailers who provide inconsistent or poor service quality. Our first hypothesis

reflects these assumptions:

Hypothesis 1: The greater the experience in shopping:

a. the greater the expectations for service quality;

b. the greater the perceptions on service quality.

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Most Asian cultures tend to be more fatalistic than North Americans and Western Europeans. In addition,

religious values may add to the cultural values of fatalism. The Philippines is highly Roman Catholic, with also a

strong Muslim population, both of which may be fatalistic (Sison 2003). In general, high context cultures are more

fatalistic than low context cultures. People with high levels of fatalism do not believe they have much control over

events that affect them; rather these events are controlled by fate. Fatalism has been found to differ across cultures

and to be related to ways in which people respond to dissatisfaction (Foxman, Raven, and Stem 1990), to market

uncertainty (John et al. 1986), and to inversely affect both expectations and perceptions of service quality (e.g.,

Raven & Welsh, 2004)..

Fatalism has been linked to attributions of poverty and cross-cultural differences between Lebanese and

Portuguese (Abouchedid & Nasser, 2002) and used with Hofstede’s value dimensions to compare cultural values in

Russia, Georgia, Kazakhstan, and Krygystan (Ardichvili, 2001) as well as in Kuwait and Lebanon (Raven & Welsh,

2004). Previous use of the fatalism scale in cross-cultural marketing studies has had mixed results, with reliabilities

sometimes marginal (John, et al., 1986; Foxman, et al., 1990). Tansuhaj et al. (1991) found that people with higher

fatalism perceived greater product risk. Fatalistic cultures tend to belong to similar cultural clusters (Gupta, Hanges,

and Dorfman 2002), and should respond similarly to expectations of service quality. Research suggests more

fatalistic people respond less actively to dissatisfaction (Foxman, Raven, and Stem 1990). We expect high fatalism

individuals should perceive service quality as being lower than less fatalistic individuals.

Fatalism seems related to Hofstede’s uncertainty avoidance cultural value. In those cultures with high

fatalism values, people may attribute service quality encounters to events and people over which they have little or

no control. As a result, the correlation between expectations and perceptions of the quality of service encounters

and fatalism is expected to be negative. Retail employees, for example, might believe that service is a function of

the store management and not in their direct control. As a result, there may be both expectations to offer low levels

of service and perceptions that low levels are offered.

Hypothesis 2: The greater the fatalism:

a. the less service quality expected;

b. the less perceived service quality.

3. Methodology 3.1 The Sample

Retail employees in Cebu, Philippines were surveyed by three employees of Synergy Tech International, a

Philippine manpower firm. Service personnel administered the surveys personally under the direction and training

of the author. A convenience sample of first-line salespeople and their managers were surveyed, resulting in 124

usable responses. A profile of the sample is listed in Table 1.

INSERT TABLE 1 ABOUT HERE

The city of Cebu is the second largest and the fastest growing city in the Philippines with a population of

over two million (Cebu Invest, 2004). The stores were located mostly in shopping centers (96%), but a few were on

the street (.8%), and others were stand-alone stores (3.2%). More than 100 stores were sampled – most were small

4

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individually owned stores, although department stores were also sampled. A wide variety of products were offered

in the stores, including automotive parts, electronics, travel, banks, fashion clothing, sporting goods, food, books,

among other products and services. Employees were primarily sales people, but managers and other customer-

contact people were also surveyed.

3.2 Measures Used

ServQual. The primary measure of interest was service quality, comparing expected service and perceived service

outcomes. Validity and reliability of the ServQual scale has been well-supported (Parasuraman, Zeithaml, & Berry,

1986, 1988). The ServQual scale measures the expected and perceived levels of service on five dimensions:

Tangibles – physical neat appearance of the facilities, personnel, etc. Reliability –ability to perform service dependably and accurately Responsiveness – willingness to help customers Assurance – conveyance of knowledge, trust, and confidence Empathy – caring, individualized attention

Previous studies using the ServQual scale have generally been supportive of these dimensions, but there

have been some questions raised as to its generalizability (e.g., Cronin & Taylor, 1992; Teas, 1993). The ServQual

instrument has also been used in cross-cultural and cross-industry studies, with generally satisfactory results, but

there are cultural variations (cf. Donnelly, Van’T Hull, & Will, 2000; Lam, 1997; Welsh & Raven, 2004).

Fatalism Fatalism refers to the level of control people believe they have over outside events. High levels

of fatalism suggest people believe they have little control over events affecting their lives. The Philippine culture is

generally considered to be fatalistic. We used a scale developed by Farris and Glenn (1976) to tap this dimension.

A seven-point Likert scale anchored by strongly disagree / strongly agree was used. The questions asked

respondents the extent to which they agreed with the following statements:

• Making plans only brings unhappiness because the plans are hard to fulfill. • It doesn’t make much difference if people elect one or another candidate, for nothing will change. • With the way things are today, an intelligent person ought to think about the present, without worrying

about what is going to happen tomorrow. • The secret of happiness is not expecting too much out of life and being content with what comes your

way.

4. Results

A psychometric analysis of the measures is listed in Table 2. The reliabilities on the diagonal are generally

satisfactory for an exploratory study, except for the fatalism scale, which is rather low.

INSERT TABLE 2 ABOUT HERE

The first hypothesis predicted that those with greater shopping experience will (a) expect higher service

quality and (b) perceive that it was delivered.. The ServQual measure was used to determine expectations and

perceptions of service quality and we operationalized shopping experience by asking respondents if they were the

primary shopper for their household. Responses were “Yes, for most items;” “Yes, for some items,” and “No.”

ANOVA indicated significant differences for Tangibility, Responsiveness, and Empathy. Differences in

means were tested using t-tests. Because there were relatively few respondents indicating they did some or none of

the shopping, we combined those categories to indicate less experienced shoppers, see Table 3.

5

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INSERT TABLE 3 ABOUT HERE

All the means were in the hypothesized direction, that is the “Yes, most” means were greater than “Some-

None” means, except for Assurance. Only Responsiveness and Empathy were statistically significant. It appears

from these results that those who shop more do tend to expect more in the way of service quality than those who are

less regular shoppers, which supports hypothesis 1 (a). Part (b) of the first hypothesis examined perceptions of

service quality. ANOVA indicated that perceptions were related to shopping experience in all cases except for

Responsiveness. The means were then compared and the results are reported in Table 3. All results for this

comparison were in the hypothesized direction and Tangibility, Reliability, and Empathy were statistically

significant. These results tend to support hypothesis 1 (b).

The second hypothesis expected fatalism to inversely relate to service quality. ANOVA indicated some

significant differences so we proceeded to compare means with t-tests, reported in Table 4

Most of the results are consistent in direction with our hypothesis for service expectations, but only Responsiveness

and Empathy were statistically significant. Reliability was in the opposite direction to that hypothesized, but was

not significant. In general, these results support Hypothesis 2 (a). All results testing perceptions against fatalism

were in the hypothesized direction, but only Responsiveness and Empathy were statistically significant. These

results tend to support Hypothesis 2 (b).

INSERT TABLE 4 ABOUT HERE.

5. Discussion

Research results suggest that service quality expectations and perceptions in the Philippines are influenced by

shopping experience. Shoppers with more experience tend to expect higher service quality and perceive that it was

delivered. This has implications for retailers in communicating and delivering service quality as shoppers become

more experienced and discerning. Retailers delivering higher service quality than their competition should have

more loyal customers. It also has implications for retail managers in ensuring marketers understand service quality

parameters of importance to customers.

In this study, respondents with lower fatalism scores had higher service quality expectations and

perceptions than those with higher scores. The more fatalistic people expected and perceived that they received

lower service quality. Fatalism may be an indicator variable for other changes going on slowly within a culture and

deserves consideration in global retail strategies.

As retailing becomes more global, it is important to note the disparities of the needs of customers and

employees across cultures. It is critical that international retailers value and comprehend the potentially large

Philippines market and strategically manage the diversity of employees and consumers in this market. Policy

manuals and training programs should be designed to bridge potential differences in philosophy and practice that

exist between the corporate headquarters and a new location. Performance benchmarks and service measurements

need to be aligned with the prevailing business landscape, and be continually refitted to the changes in industry

dynamics. A one-size-fits-all global management approach could be a prelude to stakeholder conflict and business

disaster. While motivational approaches may in fact be universal, Philippine suppliers, employees, customers,

agents, partners, and competitors, are distinct and would require a tailor-fit motivation and reward strategy.

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6. Limitations

The results of this study are subject to four major limitations that tend to be typical in exploratory studies.

First, the data was gathered only in Cebu City, Philippines. While this is valuable in an international context, it also

limits generalizability. Second, the surveys were completed by a convenience sample of retail managers and

salespersons that may not represent the larger population of customers. In fact, while employees are also customers,

they may react differently to a Service Quality survey. They could either respond more positively – a demand effect

– or, perhaps, more negatively, based on their higher level of training and expectations. We did not test for this

possibility. Third, since self-reporting techniques were used, respondent biases may exist. The survey was in

English and although English is widely spoken in the Philippines, there is a chance that some respondents may have

misunderstood some terminology. The survey administrators did not receive any feedback from the participants that

this was an obstacle. Fourth, we used scales that have not been previously tested in the Philippine culture. These

limitations are not unusual when conducting international research of this nature. However, the value of increasing

our understanding about the Philippine retail environment outweighs the limitations of the study.

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Table 1. Respondent Profile of Filipinos (n=124)

Demographic Percent Gender: Female 76.9 Male 23.1 Age (years): 25 and under 24.6 26-35 50.8 36-45 17.2 46 and older 7.4 Marital Status: Single, never married 43.1 Married 48.0 Single, was married 8.9 Primary Shopper: Yes, most of the time 47.9 Yes, some of the time 37.2 No 14.9 Socio-Economic Status: Upper 5.8 Upper-Middle 19.0 Middle 62.0 Lower 10.7 Other 2.5

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Table 2. Psychometrics Analysis of Measures Correlations, Means, and SD. Reliabilities in Bold on the Diagonal (n=124)

1. ET 2. ERl 3. ERs 4. EA 5. EE 6. PT 7. PRl 8. PRs 9. PA 10. PE 11.

Fatal 1. Expectations: Tangibles

.8735

2. Expectations: Reliability

.787** .8542

3. Expectations: Responsiveness

-.210* -.219 . 6310

4. Expectations: Assurance

.649** .698** -.063 .9481

5. Expectations: Empathy

.232* .282** -.657** .137 .8578

6. Perceptions: Tangibles

.608** .578** -.110 .494** .211* .8500

7. Perceptions: Reliability

.570** .661** -.144 .496** ..190** .774** .8230

8. Perceptions: Responsiveness

.204* .220* -.373** .213* .551** .300** .391** .8726

9. Perceptions: Assurances

.626** .601** -.029 .646** .142 .810** .791** .425** .8726

10. Perceptions: Empathy

.337** .323** -.294** .225* .464** .461** .450** .553** .389** .7608

11. Fatalism

-.028 .011 .346** -.032 -.392** -.045 -.054 -.369** -.013 -.348** .6241

Number of Items 4 5 4 4 5 4 5 3 4 5 4 Mean 6.1336 6.0798 3.2801 6.1988 4.9824 5.9803 6.0852 5.5738 6.3728 5.5465 3.2829 SD 1.2363 1.2400 1.5074 1.5293 1.7438 1.1769 1.1866 1.3907 1.1821 1.5098 1.4670

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Table 3. t-Tests – means of Expectations/Perceptions vs. Primary Shopper (Yes, most / Some-None)

Primary Shopper N Mean t P

Expect-Tangibility Yes, most 57 6.2456 .943 .351 Some-None 61 6.0301 Expectations-Reliability Yes, most 57 6.1833 .826 .410 Some-None 61 5.9934 Expect-Responsiveness Yes, most 58 5.0718 2.628 .010 Some-None 61 4.3634 Expect-Assurance Yes, most 58 6.0862 -.704 .483 Some-None 61 6.2869 Expectations-Empathy Yes, most 58 5.3828 2.564 .012 Some-None 61 4.5779 Perceptions-Tangibility Yes, most 56 6.2500 2.522 .014 Some-None 55 5.6909 Perceptions-Reliability Yes, most 56 6.3845 2.705 .008 Some-None 55 5.7845 Perceptions-Responsiveness

Yes, most 56 5.7545 1.461 .147

Some-None 55 5.3667 Perceptions-Assurance Yes, most 57 6.5088 1.232 .221 Some-None 56 6.2321 Perceptions-Empathy Yes, most 57 5.9237 2.642 .010 Some-None 56 5.1857

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Table 4. t-Tests – Expectations/Perceptions vs. Fatalism

Fatalism N Mean t P

Expect-Tangibility Low fatalism 66 6.1667 .644 .521 Hi fatalism 48 6.0174 Expectations-Reliability Low fatalism 66 6.0523 -.154 .878 Hi fatalism 48 6.0875 Expect-Responsiveness Low fatalism 66 5.2184 4.088 <.001 Hi fatalism 48 4.1406 Expect-Assurance Low fatalism 66 6.3030 .408 .684 Hi fatalism 48 6.1979 Expectations-Empathy Low fatalism 66 5.5215 3.904 <.001 Hi fatalism 48 4.2979 Perceptions-Tangibility Low fatalism 65 6.0269 .572 .568 Hi fatalism 48 5.9010 Perceptions-Reliability Low fatalism 65 6.1415 .543 .588 Hi fatalism 48 6.0226 Perceptions-Responsiveness

Low fatalism 65 5.9141 3.026 .003

Hi fatalism 48 5.1094 Perceptions-Assurance Low fatalism 66 6.4280 .168 .871 Hi fatalism 48 6.3958 Perceptions-Empathy Low fatalism 66 5.8523 2.692 .008 Hi fatalism 48 5.0958